Question 1

The registration systems established under provincial personal property security laws in most provinces are superior to the systems that existed previously.Which of the following best describes why the new systems are better?

Accepted Answer

The answer of The registration systems established under provincial personal...

Question 2

TevCo Inc supplies tennis racquets to Olympus Sports Inc,a retail sporting goods store.TevCo and Olympus have entered into a supply agreement which provides that TevCo has a security interest in all racquets it supplies until they are paid for by Olympus.TevCo filed a financing statement to register its security interest on January 1,2011.Prior to that date,Olympus had entered into an agreement with the Bank of Ottawa for an operating line of credit.As part of that agreement,Olympus gave the bank a security interest in all its present and future assets.The bank filed a financing statement to register its interest on December 1,2009,indicating an interest in all of the debtor's assets including inventory.On March 1,2012,TevCo delivered to Olympus its first shipment of 100 tennis racquets.Olympus never paid for them.A few days later,Olympus went into default under its agreement with the bank.Both TevCo and the bank claim to be entitled to the tennis racquets.Which of the following best describes the legal position of the two secured parties?

Accepted Answer

The bank's security interest will prevail over TevCo's because the bank perfected its interest first and included inventory in its financing statement. While TevCo's security interest is a purchase money security interest, this priority is only applicable if notice is given to the bank before or within 20 days of delivery of the goods. Since TevCo did not give notice to the bank, the bank's security interest has priority. The fact that Olympus defaulted on its obligation to TevCo before the bank is not relevant in determining priority of security interests.

Question 3

The special rules providing for the creation of purchase money security interests under provincial personal property security laws were put in place because if there were no such rules,

Accepted Answer

The special rules for purchase money security interests allow a subsequent supplier of goods to have first priority over other secured parties if they have provided financing that enabled the debtor to acquire the goods in question. Without such rules, the prior security interests of other creditors could extend to the goods supplied by the subsequent supplier, making it difficult or impossible for them to obtain first priority for their security interest.

Question 4

Comerica Bank is considering lending $50 000 to Piat Co,a farm equipment dealer that carries on business across the country and has its head office in Toronto.Piat will use the money to build an addition to its show room in Regina,Saskatchewan.Comerica wants to take a security interest in Piat's farm equipment inventory in all provinces.Which of the following best describes the searches that Comerica should do to assess the value of such a security interest? Comerica should search

Accepted Answer

Comerica should search the registries under the personal property security laws of each province where Piat Co operates, as well as the registry under the Bank Act, to fully assess the value of the security interest in Piat's farm equipment inventory across the country.

Question 5

The Canadian Imperial Bank of Commerce has lent $100 000 to Cryo Corp,a corporation manufacturing medical equipment.Cryo carries on business in Ontario.The bank has taken a security interest in Cryo Corp's inventory under s 427 of the Bank Act.Which of the following is TRUE?

Accepted Answer

Section 427 of the Bank Act provides automatic protection for the bank's security interest in the inventory of Cryo Corp. However, the bank should also register its interest with the office of the Bank of Canada nearest Cryo's place of business and file a financing statement under the Ontario Personal Property Security Act to perfect its security interest. This is because the Bank Act only provides a limited priority period of 15 days for the bank's security interest, after which it loses priority to any subsequently registered interests. Registering under both federal and provincial regimes provides the bank with maximum protection and priority over other creditors.

Question 6

Orange Bank was going to lend Fasgo Inc $1 million.As security for the repayment of the loan,Fasgo was going to give Orange Bank a general security interest in all its present and future assets.The parties have decided that the agreements will be signed and the financing will be completed on Friday.Orange Bank should file a financing statement to register its interest a few days before the completion of the transaction because

Accepted Answer

The answer of Orange Bank was going to lend Fasgo...

Question 7

Info-Tech Ltd is a distributor of computers.Info-Tech borrowed $500 000 from the Bank of Montreal in 2008.In its written agreement,Info-Tech agreed pay back the loan over four years.As security for the loan,it gave the bank a security interest in all of its present and future assets.The bank never filed a financing statement to perfect its interest.In September 2009,Info-Tech still owed $400 000 to the bank.It also owed $40 000 to Computer Sales Inc,its primary supplier.Info-Tech defaults on its loan payments and its payments to Computer Sales.Computer Sales sues Info-Tech and gets a judgment for $40 000.It then takes possession of Info-Tech's inventory and starts selling it off.The bank finds out and claims that its security interest prevails over Computer Sales.Which of the following best describes the legal position of the parties?

Accepted Answer

Computer Sales is entitled to the inventory because as a judgment creditor in possession of the inventory, it prevails over the bank's unperfected security interest. Even though the bank had a security interest in all of Info-Tech's present and future assets, it never filed a financing statement to perfect its interest. This means that the security interest was not enforceable against third parties, such as Computer Sales, who had a valid claim to the inventory through a judgment. Therefore, Computer Sales has priority over the bank's unperfected security interest.

Question 8

Able Finance Corp carries on a lending business in Saint John,New Brunswick.Athos Transport has asked Able to acquire a truck trailer and then lease it to Athos for five years in return for monthly payments which will cover the full amount of the purchase price plus 10 percent.At the end of the lease term,Athos has an option to buy the trailer for $100.Assuming that Able and Athos enter into this transaction,which of the following is TRUE? The New Brunswick Personal Property Security Act

Accepted Answer

The answer of Able Finance Corp carries on a lending...

Question 9

Marissa Inc carries on an automobile parts manufacturing business in Ontario.Marissa has just finished negotiating a loan in the amount of $50 million from National Bank.As security for the corporation's obligations under the loan,Marissa has agreed to give National Bank a security interest in all of the corporation's present and future assets.Which of the following is TRUE?

Accepted Answer

Option A is incorrect as the security interest granted to National Bank covers all of Marissa's present and future assets, which includes production equipment.

Option B is correct as Marissa can sell inventory in the ordinary course of its business free of the security interest of National Bank. However, any proceeds from the sale of inventory will still be subject to the security interest of National Bank.

Option C is incorrect as the security interest that Marissa has given to National Bank only covers Marissa's assets, and has no effect on the security interests of any supplier who provides products to Marissa.

Option D is incorrect as the security interest granted to National Bank covers all of Marissa's present and future assets, including any new assets acquired by Marissa.

Option E is incorrect as the security interest granted to National Bank attaches immediately upon execution of the security agreement, and does not require the security interest to crystallize before it becomes effective.

Question 10

In August,Shazad borrowed $20 000 from the Bank of Nova Scotia in order to finance his pool cleaning business.The bank and Shazad entered into a general security agreement under which the bank took a security interest in all of the present and future assets of Shazad.Jacqueline is a car mechanic who did some repairs in September on a truck that Shazad uses to carry on his business.The truck is still in her shop in Hamilton,Ontario.Shazad has not paid Jacqueline the $2000 bill she gave him in September for repairs to the truck,and he is in default under his loan agreement with the bank.Which of the following is TRUE?

Accepted Answer

Jacqueline's possessory lien, which arises from her work on the truck and her possession of it, generally takes priority over the bank's security interest because she has not been paid for her services.

Question 11

Battleford Bank lent Artegal Manufacturing Inc $50 000.The loan is secured by a general security agreement under which Artegal has given Battleford Bank a security interest in all of its equipment.The agreement provides that Artegal must deliver financial statements to the Bank every three months.Failure to do so is defined as a default under the agreement.Artegal fails to deliver financial statements for a three-month period,though it has not missed any loan payments.Which of the following is TRUE?

Accepted Answer

Even though Artegal has not missed any loan payments, they have committed a default as defined in the security agreement by failing to deliver financial statements for a three-month period. Therefore, the bank may take enforcement action, such as demanding that the financial statements be delivered or taking any other remedies available under the security agreement.

Question 12

The Bank of Nova Scotia and MMX Corp are discussing setting up a line of credit for MMX.Under the terms of the line of credit,MMX will be able to require the bank to advance it funds at any time up to an aggregate cap of $10 000.MMX will give the bank a security interest in all of its present and future assets.The parties have not yet entered into an agreement and the bank has advanced no money.The bank files a financing statement to register its interest in anticipation of the agreement being entered into.Subsequently,Melanie,the president of MMX,lends the corporation $20 000.MMX gives her a security interest in all its present and future assets.Melanie files a financing statement to register her interest.Which statement best describes the relative priority of the claims of Melanie and the bank?

Accepted Answer

Melanie has priority over the bank because she filed a financing statement before the bank had advanced any funds, meaning that the bank's security interest did not attach. As a result, Melanie's security interest takes priority over the bank's potential security interest. The amount of money lent and the timing of negotiations are not relevant factors in determining priority. The fact that Melanie is the president of MMX also does not affect priority.

Question 13

The notice filing systems in place in most provinces have which of the following advantages?

Accepted Answer

The answer of The notice filing systems in place in...

Question 14

Which of the following best describes why personal property security legislation requires that a secured party in possession of collateral act in a commercially reasonable way when disposing of it?

Accepted Answer

Secured parties are primarily focused on recovering the amount owed to them and their expenses, rather than maximizing the sale price of the collateral, hence the need for a legal requirement to ensure commercial reasonableness.

Question 15

In June,Alicia borrowed $10 000 from the Toronto-Dominion Bank to start her record company.She agreed to give the bank a security interest in all of her assets,but the agreement was never recorded in writing.In July,she sold some CD-burning equipment to Record Supply Inc.Which of the following best describes the bank's claim against the equipment?

Accepted Answer

A security interest in personal property must be attached and perfected in order to be enforceable against third parties. Attachment occurs when the creditor gives value, the debtor has rights in the collateral, and a security agreement is created. However, the security agreement must also be perfected by filing a financing statement with the appropriate government agency. Since the agreement in this case was not recorded in writing, the bank's interest was never attached to the equipment and therefore cannot be enforced against Record Supply.

Question 16

Oneal carries on a wholesale toy distribution business.He sells to his customers on credit,giving them 30 days to pay.Oneal is negotiating for an operating line of credit and his bank has asked him to assign his receivables to them as security for his obligations under the line of credit.Assuming that Oneal agrees to the assignment,which of the following is TRUE?

Accepted Answer

If Oneal agrees to the assignment, he will still be allowed to collect his own receivables and carry on his business as usual unless he defaults on his loan and the bank exercises its rights pursuant to the assignment agreement. The customers will continue to pay Oneal, but the payment will be made to the bank as an assignee. If there is a default, the bank has the right to collect the receivables directly from Oneal's customers. Option A, B, D, and E are incorrect as they are not true statements.

Question 17

Jovan Co owns a building in Winnipeg in which Saturn Shoes Inc has rented a store premises since 2000.In 2012,Galaxy Shoes Inc agreed to supply Saturn with its inventory of shoes on credit.Under its agreement with Saturn,Saturn gives Galaxy a security interest in its shoe inventory.Galaxy filed a financing statement to register its interest under the Manitoba Personal Property Security Act.No other financing statements have been registered against Saturn.Saturn has not paid its rent for two months and is in default under its agreement with Galaxy.Jovan and Galaxy both claim to be entitled to seize the shoes currently in Saturn's store.Which of the following is TRUE?

Accepted Answer

As a landlord, Jovan has a distraint right that prevails over most security interests, including Galaxy's purchase money security interest.

Question 18

Donaldo China Inc is an importer of plates operating in Toronto.It borrowed $100 000 from Barings Bank and,in a written agreement,gave the bank a security interest in its inventory.The bank filed a financing statement to register its security interest for two years in 2010.The bank's registration expired in December 2012.In April 2013,Donaldo becomes bankrupt.A trustee in bankruptcy is appointed to administer the estate of Donaldo.Which of the following statements is TRUE?

Accepted Answer

The security interest was not renewed after its expiration in December 2012, so it was no longer valid when Donaldo became bankrupt in April 2013. As a result, Barings Bank cannot claim security on the inventory, and its claim will be treated as unsecured debt.

Question 19

Perfection of a security interest in collateral means that

Accepted Answer

Perfection of a security interest in collateral means that the security interest, when perfected by filing a financing statement, generally ranks ahead of any interest perfected after the date of registration as well as unperfected security interests in the same collateral. This does not mean that no other interest of any kind in the same collateral can rank ahead of the security interest, as there may be existing prior perfected security interests or liens. Therefore, option A and D are incorrect. Option B is also incorrect because a perfected security interest ranks ahead of all unperfected security interests, not just unperfected interests in the same collateral. Option E goes beyond the scope of the question and is therefore irrelevant.

Question 20

Jerome is a farmer who has just agreed to borrow $100 000 from the Bank of Montreal to buy some new farm equipment.He has given the bank a security interest under s 427 of the Bank Act.Which of the following statements is FALSE?

Accepted Answer

The Bank Act security does not always have priority over all prior registered provincial security interests; priority can depend on various factors, including the timing of registration and the nature of the interests.

Quiz 23: Secured Transactions